December 12, 2018
Changes are long overdue at one of the world’s largest auto manufacturers.
With Nissan Motor Co. itself being charged on Monday with falsifying securities reports, the automaker’s slowness to implement corporate governance reforms has again come to the fore.
Though Nissan aims to accelerate drastic across-the-board managerial reforms, including the establishment of a “remuneration committee” comprising external directors to decide board members’ pay, the firm is expected to face an uphill battle.
Responding to the charges against Nissan, President and Chief Executive Officer Hiroto Saikawa told reporters Monday night, “We have taken action because we are determined to fulfill our responsibility as a corporation to disclose [executives’ remuneration].”
“We must take prompt measures to tackle the urgent task of [reforming management],” he said.
Several Nissan executives said that promotion, demotion and executive remuneration were entirely decided by former Nissan Chairman Carlos Ghosn.
“You risk your future if you rebel against Ghosn,” some employees have said of the mood that took hold at the company, causing deliberations at board of directors’ meetings to lose substance.
In 1999, Ghosn was sent from France’s Renault SA to financially troubled Nissan. He became the “savior of Nissan,” and consequently too much power was concentrated in him.
In recent years, Ghosn had decided board members’ compensation in consultation with Saikawa and then representative director Greg Kelly, an aide to Ghosn. However, in reality, Ghosn had the final say on compensation.
Nissan is said to lag behind other global companies in terms of establishing strong corporate governance.
The Corporate Governance Code, a set of guidelines for the conduct of listed companies drawn up in 2015, urges firms to separate “business execution” and “oversight of management.”
The guidelines also state that companies should appoint at least two independent external directors.
According to the Tokyo Stock Exchange, about 85 percent of 2,540 companies listed on the First and Second Sections on the TSE met the requirement as of July 2017, but Nissan had appointed only one independent director as of June.
The basic idea of the guidelines is that the board of directors has the responsibility to set the broad direction of corporate strategy and conduct more effective oversight, in order to ensure that executives properly manage the company.
The guidelines state it is desirable for a company to decide executive personnel matters and remuneration by establishing a nomination committee and a remuneration committee, both comprising independent external directors. Nissan, however, did not adhere to this recommendation.
Nissan takes seriously that it allowed Ghosn to treat the company like his personal possession, and plans to discuss the establishment of a nomination committee and a remuneration committee.
Nissan has recently faced sluggish sales. In the United States, where the firm has a strong presence, Nissan’s new car sales dropped 6.4 percent to 1.23 million units from January through October. Overall foreign sales in the same period dropped 2.8 percent.
Saikawa is facing strong criticism that he has failed to offer clear explanations regarding a series of improper practices over inspections of completed vehicles that have come to light since September last year.
Calls for Saikawa and other current Nissan executives to take responsibility are expected to increase in the near future.